Baxter International to Separate into Two Healthcare Companies in Mid-2015
(BAX, $73.93, up $3.85 midday)
Baxter International announced today that it will spin off its biopharmaceutical business to shareholders in mid-2015. The remaining company will focus on life-saving medical products. Read more from MarketWatch.
BAX has not earned a buy rating at Goodfellow LLC because earnings growth is not strong enough to meet my investment criteria. Earnings per share (EPS) are expected to grow 10%, 7%, and 8% in 2014 through 2016 (December year-end). The dividend yield is 2.64%, and the price-earnings ratio (PE) is 14.4, within a normal range of 12-27. The 2013 long-term debt ratio was 47%.
The stock reached all-time highs today on the spin-off news. I would not chase the stock here, because the market will become bored with the spin-off news by the weekend, and the stock will likely have a pullback.
I owned shares of BAX until this morning. I bought them in December, after the Fall 2013 market correction, in order to catch the rebound and the dividend. I had a sell limit order in place at the top of the trading range, and was pleased to see the stock sell higher than the limit, at $75.10, at the open of trading today.
Current shareholders who are more focused on capital gains than on a long-term buy-and-hold strategy should sell now. Re-deploy the principal into a stock with strong earnings growth and a bullish chart. Subscribe now for excellent ideas to improve your portfolio performance!
BAX data by YCharts
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Hewlett-Packard Shares Continue Rising
Shares of computer products company Hewlett-Packard (HPQ, $32.35) continue to climb since I told investors about the price breakout on March 18. At that time I said, “Sometimes it’s very obvious from technical charts to predict what the stock is likely to do next. In that light, I believe that HPQ is breaking past medium-term price resistance. Shareholders should hold their stock for additional gains, and use stop-loss orders to protect their downside. Experienced momentum investors could jump in here for near-term capital gains.”
Hewlett-Packard shares are up 29% since my “trading buy” recommendation on November 26, and 45% since my August 22 buy recommendation on Ransom Notes Radio.
I think the stock can rise to at least $35 in the near-term before having a pullback.
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Goodfellow LLC Rating: Hold, Value, Volatile, Public. (03-26-14)
HPQ data by YCharts
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Facebook Shares Fall on News of Oculus Purchase
(FB, $60.89, down $4.00 midday)
Facebook Inc. announced plans to purchase Oculus VR, a leader in immersive virtual reality technology, for future use in gaming, communications, and commerce. Facebook CEO Mark Zuckerberg sees augmented reality as the next big phase in technology.
Facebook will pay up to $2.3 billion for Oculus, through a combination of $400 million cash, $1.6 billion stock, and $300 million in earnouts. The deal will close in the second quarter of 2014.
I last wrote about FB shares on March 10, when I successfully advised investors to complete a trading buy recommendation from January 30. The stock reached its highest closing price that day, at which point I changed the rating to hold, saying, “The stock is overvalued.”
While there is no material change in the strong earnings growth outlook today, the price-earnings ratio (PE), which was already quite high, will necessarily jump higher when the new shares are issued for the Oculus purchase.
FB’s share price has now lost all its gains since my January 30 buy recommendation, and I hope that Goodfellow LLC subscribers heeded my warning on March 10 to use stop-loss orders.
Goodfellow LLC Rating: Aggressive Growth, Volatile, Public. (03-26-14)
FB data by YCharts
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AOL Shares Up 5% on Analyst Report
(AOL, $44.50, up $2.25 midday)
The Fly on the Wall reported today, “Jefferies reiterates a Buy rating on AOL following recent weakness in the stock and says the company’s Network segment is an underappreciated longer term opportunity. The firm says AOL remains a favorite mid-cap name and it keeps a $66 price target for shares.”
Time Warner (TWX) spun off internet services company AOL Inc. into a separately traded public company in December 2009. AOL’s earnings per share (EPS) are expected to grow 8%, 18% and 14% in 2014 through 2016 (December year-end). The price-earnings ratio (PE) is high at 19.8.
AOL shares traded sideways for twelve months through November 2013, then broke through upside resistance. The price peaked in mid-January, and has been ratcheting downward ever since.
I wouldn’t go bottom-fishing here, but would rather concentrate on undervalued stocks with strong earnings growth projections and bullish charts. If somebody gave me the stock today, I’d put in a sell order at $45, then move on.
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AOL data by YCharts
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Gilead Favored in Court Ruling; Frowned Upon in Congress
(GILD, $71.49, down $0.58 midday)
I wrote about Gilead Sciences on March 14. Since then, there have been changes in news, and in stock price.
A Norwegian court has ruled against Idenix Pharmaceuticals in a patent case vs. Gilead Sciences. MarketWatch says that Idenix will appeal the ruling.
And in the U.S., lawmakers in the House Energy & Commerce Committee are questioning Gilead Sciences over the $84,000 annual cost of its new hepatitis C drug. “While the treatment has been shown to cure many patients, the payors are balking at the prospect of covering the therapy for millions of people at a cost in the billions of dollars,” reports Reuters.
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Earnings per share (EPS) growth at AT&T Inc., rapid in recent years, has slowed dramatically to an expected 4-6% per year in 2014 through 2016. The dividend is large at 5.3%; and the PE is high at 13.1.
I think that the stock can rise to $35 in the near-term, then it will likely continue to trade sideways. With earnings growth projections falling, I would trade out of this overvalued stock at $35 and move on to a company with strong earnings growth and a bullish chart.
T data by YCharts
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